Kazakhstan: Astana Flexes Its Muscles In South Caucasus

The BTC pipeline is just the latest in a string of Kazakh investments (AFP)
When Kazakhstan signed up to the U.S.-backed Baku-Tbilisi-Ceyhan (BTC) oil pipeline earlier this month it sent a signal to Russia that the Central Asian giant is beginning to punch its economic weight. BTC pumps Caspian Sea oil to the Turkish Mediterranean, bypassing Russia and Iran. By linking up to BTC, Kazakhstan shakes off Russia's virtual monopoly on the supply of its massive oil and gas output to Europe and becomes an even bigger player on the world energy market. But the move may also suggest a readiness to use economic power to develop a more muscular regional foreign policy. The decision to join BTC is just the latest in a series of Kazakh investments in the Southern Caucasus region.

PRAGUE, June 27, 2006 (RFE/RL) -- The link-up with the Baku-Tbilisi-Ceyhan pipeline is a signal of economic intent. Kazakhstan intends to diversify its oil delivery routes -- even if that means riling its northern neighbor, Russia.

If all goes according to plan, Kazakhstan should be pumping 25 million tons of oil through BTC once the necessary infrastructure is in place.

Powerful Feeling

Kazakh President Nursultan Nazarbaev is beginning to behave with the confidence of a man who can feel the power of his increasingly wealthy and influential state.

Last October, he was in Georgia to inspect the port facilities in Batumi on the Black Sea. Kazakhstan, he made clear, is looking for investment opportunities.

"In this respect, it was very important for me to become acquainted with Atchara and the port of Batumi," Nazarbaev said. "We were able to see what capacity it has. That's the first thing. The second things is that the railway link from Baku to the Black Sea has acquired great importance for us again for the transport of ferrous and nonferrous metals, alloys, grains, and other goods both to Europe and back."

Georgian President Mikheil Saakashvili could barely conceal his delight. A consortium of Kazakh investors, led by TuranAlem Bank, he said, had promised to invest $800 million to $1 billion in developing Georgia's Black Sea coast.

Media reports in Kazakhstan are now suggesting the figure may be closer to $200 million, but TuranAlem -- which has assets of more than $9 billion -- has other projects in Georgia, among them a $150 million scheme for the reconstruction of the Radisson Iveria hotel and its surrounding area in central Tbilisi; the purchase at a cost of $90 million of the United Telecommunication Company of Georgia, Georgia's largest local and international telephone operator; and a wheat terminal at the Black Sea port of Poti. Another Kazakh organization, KazTransGaz, has bought the Tbilisi gas-distribution company.

Eyes On Georgia

This month, Georgian Prime Minister Zurab Noghaideli announced that Kazakhstan had overtaken Russia and Turkey as the biggest investor in Georgia.

Part of the reason for the Kazakh interest in Georgia, says Inglab Ahmadov, director of the Public Finances Monitoring Center, an NGO based in Baku and affiliated with the Open Society Institute, is the friendly tax environment for foreign investors.

Western business may still be nervous about dipping into the post-Soviet space but Kazakhs are less inhibited.

"Georgia now has a very big investment area and a very clear area for foreign direct investment," Akhmadov said. "But direct investors from Europe and the United States think about it as very flexible and very unstable situation. But for the post-Soviet countries it is a very clear and very knowable situation."

That's a view supported by Dosym Satpayev, head of the Risk Assessment Group in the Kazakh city of Almaty. But another factor, he says, is the desire of Kazakhstan to avoid the so-called Dutch disease, the surge in inflation and collapse of the traditional export market that hit the Netherlands when North Sea gas suddenly boosted its revenues in the 1960s. One of the answers, says Satpayev, is to invest Kazakhstan's new wealth abroad.

"One can identify two key interests: The first of course is the Baku-Tbilisi-Ceyhan oil project and the second is the active investment policy of Kazakh business, particularly in Georgia," Satpayev said. "Recently, the opportunities for profitable investment inside Kazakhstan itself have become rather small. Because of this, Kazakh business has become more active on the international market, in particular, the post-Soviet states. Georgia was chosen as a state where Kazakh investments could achieve significant size."

Political Ambition

And politics too are beginning to play a part. Economic muscle, says Satpayev, has brought political ambition.

"There are of course elements here of political ambition because President Nazarbaev wants to show that Kazakhstan is not just another post-Soviet state but one of the leaders of economic development on the territory of the former Soviet Union and a state that is trying to carry out economic policy at a regional level," Satpayev said. "Of course, this is connected with the desire of the president to raise the image of the country and to raise its image in the eyes of the international community."

How far though is Nazarbaev prepared to go? A small sign perhaps was the agreement earlier this month to increase the import of Georgian wines -- this at a time when Russia has banned the import of Georgian wines, allegedly on health grounds but, most suspect, to punish Georgia for its pro-Western political orientation.

But Satpayev thinks that for the moment at least political confrontation with Russia is unlikely. Trade though is another matter.

"I don't think there will be any serious conflicts between Kazakhstan and Russia in the Caucasus, although in the future we can expect sharper conflict between Kazakh and Russian business," Satpayev said. "Precedents already exist, including in the Caucasus. For Russian business, Kazakh business is already becoming a competitor. From this point of view, yes, competition is possible, but as regards direct political confrontation there are no problems at the moment."

Russian Connection

In Georgia, economic analyst Giorgi Khukhashvili goes further than that. He suspects that Russian interests lie behind much of the Kazakh investment in Georgia.

"States are not always motivated by business," Khukhashvili said. "They often have political motives. In the strategic sphere, this is a cause for real concern. We're also getting hidden criminal capital. Normal, civilized, transparent investment is not happening. I see serious risks for the future here. I don't rule out the possibility that behind these so-called Kazakh investments stands Russian state capital."

Perhaps, although as he himself admits, there is no hard evidence of this. What there is evidence of though is the emergence of Kazakhstan as a significant regional power -- not just in Central Asia, but in the southern Caucasus as well. Georgian President Saakashvili, in a sideways dig at Russia, calls Kazakhstan a perfect partner that "never creates problems for anyone". For the moment, maybe, but how long will it be before the investment brings a political price tag?

Caspian Energy Special

For a complete archive of RFE/RL's coverage of energy issues in the Caspian Sea region and Russia, click here.

HOW MUCH OIL? The U.S. Energy Information Administration has estimated that the Caspian could hold between 17 billion and 33 billion barrels of proven oil. ("Proven reserves" are defined by energy experts to be 90 percent probable.) Other experts estimate the Caspian could hold "possible reserves" of up to 233 billion barrels of oil. ("Possible reserves" are considered to be 50 percent probable.) By comparison, Saudi Arabia has 261 billion barrels of oil and the United States 23 billion...(more)